Shopping for your dream house can be stressful. If you've been house hunting in a hot market, your stress has most likely been compounded by the multiple offer situation. You look long and hard to find a home that fits your needs, wants and desires, you submit your offer and find you're competing against 10 other buyers. On-in-ten chance you lose. The reality is, you have to fall in love with a house to consider writing on it and when that love goes unrequited, you need the stamina to pick yourself up, get back in the car and start the search all over again. Sounds like dating, doesn't it?
And just like dating, things don't always work out.
As a tenacious Realtor, I don't give up easily. When my buyers love a home, I do my best to write a very strong offer and if we don't win the bid, I suggest they submit a backup offer. I have very good luck with this strategy.
How does it work?
When a seller accepts an offer, all terms of that purchase contract go into effect and the ball starts rolling towards the closing table. But all transactions don't close, for a multitude of reasons; inspection items that cannot be agreed upon, buyer financing falls through, appraised value comes in under purchase price and new terms cannot be agreed to. The buyer has the option of terminating the contract for any of these reasons and when they do, a listing agent would logically put the home back on the market... unless they have a backup.
Although "hot properties" sell quickly, sorting through multiple offers is labor intensive for the agent and stressful for sellers, who not only have their hopes dashed, they must return to the inconvenience of having the home ready for showings. Going back on the market isn't always the best bet.
Enter the Backup.
A Backup offer is the same Contract to Buy and Sell used in your original offer, with verbiage added to state that all parties understand that there is another contract in play. Upon written notice of the termination of the First Position contract, your backup offer kicks in automatically. No more competition, no more house-hunting. Once you move in to the First Position, you deliver your earnest money, schedule your inspection, and roll along toward your own closing!
When representing buyers, I always advise putting in a backup on a house they love. When written correctly:
a. You can keep shopping for a home, but make sure you've got an out-clause! This states that you can withdraw your offer prior to Notice of Termination of the First Offer.
b. It doesn't (always) cost you anything upfront as Earnest Money can be delivered when the contract takes effect if you offer is written that way. Of course, to make your backup stronger, you can deliver it with the offer and get it back if they close on the other deal.
c. You have a timeline to follow so you're not hanging on forever. Keeping in touch with the listing agent is key, knowing the deadlines on the first offer and important dates when buyers are most likely to terminate means you'll have a good idea of when to hold 'em, when to fold 'em.
d. The home has been through an inspection so the sellers are aware of any issues the property may have. This doesn't mean you don't do your own inspection, radon test and sewer scope, but the sellers would now have to disclose anything they didn't know prior.
e. The right buyers always get the house. (IMO)
As a listing agent, I adore the backup offer for many reasons.
a. It gives me leverage with the first offer. Buyers are less likely to be overly demanding on inspection items when they know there's someone waiting in the wings.
b. Moving from the first offer seamlessly into the second saves time and often doesn't delay the closing by more than a few days and gives the sellers peace of mind.
c. I don't have to take the house off the market for the first contract and put it back on again. (Buyers always wonder what's 'wrong' with the house.)
d. The right buyers always get the house.
What are the odds that the backup offer will succeed? You never know. But I do know, it's a lot better odds than if you don't submit one. Over the last three years, I've closed quite a few deals with a backup offer.
(Laws regarding contracts for back up offers may vary state-to-state, check with your Realtor or real estate attorney)